SALARY STRUCTURE - The `3 Cs' rule to rewarding and keeping salespeople engaged



Planning the ideal sales force incentive compensation programme is very challenging. Pay enough, and you'll energize your salespeople.

Pay too much, and you'll throw money away while turning salespeople into loafers who can get by on fewer sales.

Pay too little, and you'll drive your best salespeople away.

But how much is enough, too much or too little? How can you find the perfect balance?

Luckily, sales and marketing experts Andris A. Zoltners, Prabhakant Sinha and Sally E.Lorimer are here to help. They offer an essential map for developing and implementing the ideal compensation incentive plan for your salespeople.

According to the authors, you should begin with a budget and ask how much you can allocate to pay salespeople.

Decide what ratio of their compensation should be salary as opposed to incentives or bonuses. Do you want to vary their pay depending on performance? Ensure that bonuses or short-term incentives emphasize achievement and don't divert salespeople from their main mission. As you establish a plan, avoid complexity. Build on past successes as you keep an eye on your future sales needs.

GetAbstract recommends this instructive guide to sales managers who want to do a better job of meeting their personnel needs and, thus, their sales targets.

The authors say that a good sales incentive compensation plan should meet the "3 Cs" rule. It should be "consistent" with company strategy, "compatible" with related programmes, and "consequential"--that is, it should change sales results. However, poor sales results do not necessarily mean that the sales incentive compensation plan is flawed. The problem may come from the sales force's structure, size, training or territories. The firm may need to redraw territories, hire better managers, provide improved data and tools, or make other changes before it alters its compensation scheme.

The three authors advise that you establish the right criteria for evaluating performance before rewarding it. Measure sales results, such as gross margin, orders, collections, sales per rep, market share and value perception. Also, assess customer results. Calculate your number of repeat buyers, how deeply you have saturated the market, how much sales are increasing, and whether consumers are content and loyal. Monitor how well your reps handle prospecting, sending out proposals, serving customers and controlling account turnover. Create "objective, measurable, fair, adaptable and understandable" criteria that measure only those factors that salespeople determine by their own actions.

The book recommends that you use a commission plan if your salespeople work independently to make sales happen. Bonus plans give managers flexibility if needed, for instance, to reassign territories. Make sure that performance drives sales earnings, not individual geographic assignments.

If numerous corporate divisions share the same sales force, don't create an incentive plan with different performance metrics for each unit.
That encourages salespeople to cherry-pick the simplest process for earning their pay.
Aggregate your performance measures to ensure a "balanced selling effort". Set sales goals that build excitement.
Increase the payout rate as people come close to their objectives. Keep the plan simple, fair and encouraging.

Stay informed of the current compensation trends, suggest the authors. Weigh up "labour market values" for your sales jobs as well as past pay levels, budget, the degree of control a salesperson exerts over sales and customers, what your competitors pay, and the role each salesperson plays, internally or out in the field. Examine how much authority salespeople have to drive sales.
Consider your firm's salary standards, and local and industry compensation norms.
Seek data on pay standards when you interview prospective or departing salespeople.
Complex or highly technical sales work should earn more.
Redo your firm's sales incentive compensation plan periodically so it remains current and continues to engage and energize your salespeople.
Most firms make adjustments, at least around the edges, every year, and make wholesale changes every two-three years.

Rolf Dobelli is chairman of getAbstract. The Complete Guide to Sales Force Incentive Compensation: How to Design and Implement Plans That Work Andris A. Zoltners, Prabhakant Sinha & Sally E. Lorimer AMACOM, 2006, 496 pages List price: $65.00 ISBN13: 9780814473245

Planning the ideal sales force incentive compensation programme is very challenging. Pay enough, and you'll energize your salespeople.
Pay too much, and you'll throw money away while turning salespeople into loafers who can get by on fewer sales.
Pay too little, and you'll drive your best salespeople away.
But how much is enough, too much or too little? How can you find the perfect balance?
Luckily, sales and marketing experts Andris A. Zoltners, Prabhakant Sinha and Sally E.
Lorimer are here to help. They offer an essential map for developing and implementing the ideal compensation incentive plan for your salespeople.
According to the authors, you should begin with a budget and ask how much you can allocate to pay salespeople.
Decide what ratio of their compensation should be salary as opposed to incentives or bonuses. Do you want to vary their pay depending on performance? Ensure that bonuses or short-term incentives emphasize achievement and don't divert salespeople from their main mission. As you establish a plan, avoid complexity. Build on past successes as you keep an eye on your future sales needs.

GetAbstract recommends this instructive guide to sales managers who want to do a better job of meeting their personnel needs and, thus, their sales targets.

The authors say that a good sales incentive compensation plan should meet the "3 Cs" rule. It should be "consistent" with company strategy, "compatible" with related programmes, and "consequential"--that is, it should change sales results. However, poor sales results do not necessarily mean that the sales incentive compensation plan is flawed. The problem may come from the sales force's structure, size, training or territories. The firm may need to redraw territories, hire better managers, provide improved data and tools, or make other changes before it alters its compensation scheme.

The three authors advise that you establish the right criteria for evaluating performance before rewarding it. Measure sales results, such as gross margin, orders, collections, sales per rep, market share and value perception. Also, assess customer results. Calculate your number of repeat buyers, how deeply you have saturated the market, how much sales are increasing, and whether consumers are content and loyal. Monitor how well your reps handle prospecting, sending out proposals, serving customers and controlling account turnover. Create "objective, measurable, fair, adaptable and understandable" criteria that measure only those factors that salespeople determine by their own actions.

The book recommends that you use a commission plan if your salespeople work independently to make sales happen. Bonus plans give managers flexibility if needed, for instance, to reassign territories. Make sure that performance drives sales earnings, not individual geographic assignments.

If numerous corporate divisions share the same sales force, don't create an incentive plan with different performance metrics for each unit.
That encourages salespeople to cherry-pick the simplest process for earning their pay.
Aggregate your performance measures to ensure a "balanced selling effort". Set sales goals that build excitement.
Increase the payout rate as people come close to their objectives. Keep the plan simple, fair and encouraging.

Stay informed of the current compensation trends, suggest the authors. Weigh up "labour market values" for your sales jobs as well as past pay levels, budget, the degree of control a salesperson exerts over sales and customers, what your competitors pay, and the role each salesperson plays, internally or out in the field. Examine how much authority salespeople have to drive sales.
Consider your firm's salary standards, and local and industry compensation norms.
Seek data on pay standards when you interview prospective or departing salespeople.
Complex or highly technical sales work should earn more.
Redo your firm's sales incentive compensation plan periodically so it remains current and continues to engage and energize your salespeople.
Most firms make adjustments, at least around the edges, every year, and make wholesale changes every two-three years.

Rolf Dobelli is chairman of getAbstract. The Complete Guide to Sales Force Incentive Compensation: How to Design and Implement Plans That Work Andris A. Zoltners, Prabhakant Sinha & Sally E. Lorimer AMACOM, 2006, 496 pages List price: $65.00 ISBN13: 9780814473245